The potential of blockchain technology in the sports industry
Published 10 May 2017 By: Christina Henry
Could the use of blockchain by British Cycling's record keeping department have cleared up, quickly and authoritatively, the question of what was in the package delivered to Sir Bradley Wiggins at the 2011 Creterium du Daphine and why?
How about using blockchain to track performance data to formulate an effective training plan for athletes? Or for administering a sports club's fan loyalty scheme to maximise fan engagement?
Blockchain is a buzz word in the financial sector now, but the sporting world should also be alive to its potential.
This article examines how blockchain technology is being, and could in future be, exploited in the sphere of sport and considers some of the risks for such innovation. Specifically, it looks at:
- What is blockchain and how does it work?
- Potential opportunities for blockchain technology in sport
- Cultivation and utilisation of big data (e.g. for event results, individual player history and performance statistics)
- Fan engagement (e.g. club-specific virtual currencies/tokens, and loyalty schemes)
- Sports rights management and asset tracking (e.g. rights holders tracking rights they have licensed, and registering valuable sports memorabilia)
- Risks and author’s comments
What is blockchain and how does it work?
Blockchain is an irreversible ledger which records the transfer of data.
Blockchain ledgers are decentralised. This means they are not held by one person or entity, but, rather, each member of the blockchain network has an up-to-date copy of the ledger. The whole ledger is visible to all members of the network. This helps keep the network secure: in order to meddle with data held on a blockchain network, a hacker would need to hack every member's ledger at the same time, which is hard to do.
When data is transferred on a blockchain network, the transfers are recorded in blocks. Before a new block is embedded in the blockchain, it must be validated. The method of validation can vary from network to network. For example, this may be done by all, or certain select, members of the network independently checking that the data to be added to the ledger is valid and being transferred in accordance with the rules written into the network (i.e. the network’s protocol).
Once validated, a hash function is applied to the block of data, which is a type of mathematical algorithm which creates a unique fingerprint for the data. In blockchain, as well as its own hash, or fingerprint, each new block of data contains the hash of the previous block, which links the blocks together to form a chain. This also helps keep a blockchain network secure: tampering with the data in a block will change the hash, which will break the chain. Blockchain networks can be public, which means they are open to anyone, with no central owner, or they can be private which means the participants who can read, submit transactions and verify data are restricted. This is determined by the protocol.
Platforms such as Ethereum aim to use blockchain technology to try to facilitate a network of smart contracts. Smart contracts are often referred to as “self-executing contracts” because they consist of computer code which is programmed to automatically perform a certain outcome on the happening of a pre-defined trigger.
Blockchain technology is not necessarily cheaper or quicker than more traditional database systems. In many cases traditional database systems will be sufficient to manage data. Blockchain technology is particularly useful where the long term efficiencies of removing an intermediary outweighs the cost of developing, implementing and maintaining a blockchain system and where it is important to have an immutable audit trail of past transactions. Whether businesses choose to invest in implementing blockchain technology over making use of their existing databases systems will depend on the nature of the transactions and parties involved.
The original blockchain protocol was coded by still unknown cryptographer(s) operating under the pseudonym, Satoshi Nakamoto, and it powers the native digital currency known as Bitcoin. Using the technology, Bitcoin owners can transfer the digital currency directly, peer-to-peer, without the need for an intermediary such as a bank. Blockchain's potential arguably extends far beyond use in digital currency: at Wiggin LLP we have seen clients developing and seeking to implement blockchain technology across many industries including banking, security and aviation.
Potential opportunities for blockchain technology in sport
Doping scandals are undermining the integrity of many sports, from cycling to athletics to tennis and beyond. Cries of foul play can crop up years after the event, and professional athletes face reputational damage while lengthy investigations ensue. Medical records need to be located and analysed to try to discern what medication an athlete was administered and whether there was a legitimate reason for such medication. Even when an athlete has been officially cleared of doping offences, a whiff of doubt can hang in the air, with damaging reputational effects, given the seeming lack of conclusive paperwork or the past corruption of the industry generally.
Sports regulators face a tension between the call for transparency and a need to respect an athlete’s privacy in this sensitive personal data relating to medical history. During the Olympics held in Rio de Janerio in 2016, hackers leaked a number of medical records held by the World Anti-Doping Agency.
A secure record management system built on a private blockchain system, logging prescriptions and test results, could hold the answer. Once data is inputted into a blockchain system its authenticity would need to be verified according to the network's protocol before being irreversibly added into the blockchain and protected by cyptography making it near impossible to alter. Given data cannot be altered, and in order for the system to be reputable, the operating parties would need to agree robust rules for validating data upon input. A Blockchain system could provide a source of prescription and test result information that is both reliable (to the extent you trust the operating parties) and secure (to the extent the network incorporates strong cryptography) which could protect the integrity of sport and the individual’s data. Blockchain does not completely protect against human error or omission but, nevertheless, if evidence of a mystery drugs package being delivered to an athlete emerges years down the line, this can be checked against the blockchain records. If it shows up in the audit trail there would be a strong presumption that the drugs are legitimate.
Cultivation and utilisation of big data
Sport generates a huge volume of data: for example, event results, individual player history and performance statistics. Sports data aggregators have made lucrative businesses from collecting, collating and selling sports data.
Blockchain technology offers a means of storing, verifying and transferring data. A sports data blockchain platform has already been developed: BraveLog was launched in Taiwan in January this year with the backing of Microsoft. It aims to create an immutable and credible record of race and biometric data. Data such as race metrics, pulse rates and biometric measurements can be added to the database directly from devices and verified as credible. The idea is that it can allow a sports person to understand their capabilities and coaches to manage personal training plans effectively by using big data. It seems that the ultimate aim is for Bravelog to be linked to other industries, such as the insurance industry, via a common blockchain protocol in order for data relating to a person's fitness to be used for formulate insurance policies. Whether individuals will be comfortable sharing their personal data in this way remains to be seen.
For businesses to make money they need customers. To monetise sports, you need fans. Fans who will buy tickets to matches, spend money on merchandise and watch games on TV and other platforms, boosting TV rights and advertising revenues.
Sports clubs have embraced the use of social media to harness fan engagement, but blockchain technology could take it one step further. Sports clubs could develop their own club-specific virtual currencies/tokens which could be spent by fans on tickets, merchandise and food and drink at matches.
This could lead to operational efficiencies which could ultimately mean more profit for clubs. The system could allow for a peer-to-peer ticket exchange which could be popular with fans and allow the ticket re-sales market to be administered fairly between clubs and fans as well as circumnavigating the fake-ticket market.
Loyalty schemes administered by blockchain technology are being explored in other industries (for example IBM has partnered up with the loyalty and rewards platform Loyyal, which is built using blockchain technology) and sporting clubs and organisations could also benefit from this technology to engage fans, wherever in the world they are based.
As a means of administering loyalty schemes, blockchain offers clubs creative options: clubs could use blockchain technology to reward fans by using smart contracts to automatically send them, say, a free ticket to a match or credit their account with loyalty tokens upon the fan attending a certain number of matches per season, for example. Clubs could team up with partners on a global basis to allow fans to spend their loyalty points via one network. The decentralised nature of blockchain could help facilitate and encourage multiple partners.
Empowerment of fans and rewarding the fan community is at the heart of the Jetcoin blockchain network. The network, set up by the Jetcoin institute allows up-and-coming sportsmen and women to sell a portion of their IP rights in return for investment in their careers, for example by funding their training programs. The talent assigns a portion of their IP rights to the Jetcoin Institute who then make these rights available for sale via smart contract over the Jetcoin platform to fans using the digital currency Jetcoins.
As the talent generates revenue, Jetcoins are automatically released to the fan investors. The platform is designed to galvanise fan engagement: users can earn Jetcoins by promoting sports talent on social media platforms (such as Facebook and Twitter) and can use Jetcoins to purchase seat up grades and attend exclusive events. The more fans help promote the talent, the more direct benefit they receive.
Sports rights management and asset tracking
Sports broadcasting rights are big business, with the prime recent example being BT reportedly paid £1.18bn to renew its exclusive broadcast rights for the Champions League and Europa League.
But as our viewing habits have changed, the rights market has become increasing carved up. As well as traditional live TV viewing, fans are digesting clip-form content on their smartphones and live streams over social media.
Blockchain networks can help rights holders track rights they have licensed so they can easily identify rights which are sitting unexploited and can also use the blockchain network to facilitate automatic rights payments via smart contracts.
Blockchain technology has been applied to the diamond industry, for example Everledger, which has been used to create a digital “passport” for each diamond in a bid to prevent the illicit and fraudulent activity that has historically plagued the diamond trade. A similar system could be set up in respect of sports memorabilia so that authentic items can be tagged with a unique ID and the trail of ownership can be tracked by looking at the transaction history stored in the network.
Risks and comment
As outlined in this article, blockchain offers businesses an innovative way to administer data. However, it is not without its drawbacks. From a practical perspective, depending on the design of the network (including whether the network is set up to be public or private) blockchain technology could be expensive to implement and run. The level of computer power required to run the network should be measured against the efficiencies generated through use of blockchain.
The rules of the blockchian network may not fit seemlessly with the laws of the land. For example, the potential transparency and immutability of blockchain does not sit well with data protection legislation. In blockchain, once data is added, it cannot be removed. This conflicts with Principle 5 of the Data Protection Act 1998 that personal data must not be stored for longer than is necessary. Also, for distributed systems, with no central owner, the question is raised as to who is the data controller in respect of the data shared on the network?
Users of blockchain may not wish certain data to be widely available. Cryptography and anonymisation techniques may provide comfort to users, however through analysis of the history of transactions on the network, it may be possible to trace someone's identity. Although the security of blockchain is well publicised, networks are not immune from attacks, as can be demonstrated by the attack on The DAO (a Decentralised Autonomous Organisation fund run on blockchain technology) in July last year where hackers stole around $50m worth of cyber currency from the fund.
Before implementing any club-specific virtual currencies, sports clubs would need to ensure they comply with any applicable regulation (for example, any applicable anti-money laundering regulations).
Clubs should bear in mind that the use of blockchain technology may, in future, become a more heavily regulated area. The UK Government Chief Scientific Advisor's report "Distributed Ledger Technology: Beyond Blockchain" recognises the need to safeguard the interests of those participating in blockchain platforms and the broader interests of society whilst not stifling innovation through imposing rigid regulatory structures.
One of the key benefits of a smart contract is also one of its downfalls: smart contracts are designed to be fully automated and irreversible. But what if the parties decide they want to undo the transaction, or what if a court decides that a certain element of it is unenforceable? For example, in a consumer context, consumer legislation empowers the court to override and invalidate terms which are deemed to be unfair. How the courts navigate this new technology and equally how the technology responds to legal scrutiny will be interesting to see.
Overall, although blockchain is still in its infancy, those in the sporting world who want to stay ahead of the game should embrace the innovative opportunities this exciting technology can offer.
This work was written for and first published on LawInSport.com (unless otherwise stated) and the copyright is owned by LawInSport Ltd. Permission to make digital or hard copies of this work (or part, or abstracts, of it) for personal use provided copies are not made or distributed for profit or commercial advantage, and provided that all copies bear this notice and full citation on the first page (which should include the URL, company name (LawInSport), article title, author name, date of the publication and date of use) of any copies made. Copyright for components of this work owned by parties other than LawInSport must be honoured.
- Tags: Anti-Doping | Blockchain | Broadcasting | Commercial | Cycling | Database | Football | Governance | Media Rights | Regulation | Techonology | United Kingdom (UK)
- Seven top tips when working on sports sponsorship deals from HSBC's Global Head of Legal: Sponsorship
- What the social media revolution means for sports fans and rights holders
- How the Premier League is conquering global markets
- Current trends in the acquisition of sports rights: multi-territory bidding and new technology
Christina Henry is an associate at Wiggin LLP in at he Technology Practice. She advises a range of clients in the technology sector on commercial, regulatory and IP matters. Her recent work includes drafting agreements relating to the design and development of a blockchain network.